Performance and Diversification Benefits of Housing Investment in Iran

Tajul Ariffin Masron, Hassan Gholipour Fereidouni

Abstract

The objective of this study is to examine the effectiveness of housing as an investment instrument in Iran. In this paper, the performance and diversification benefits of housing over 1993-2008 are examined. Risk-to- reward ratio is used to assess the risk-adjusted performance of housing and other financial assets (stocks, gold coin and US dollar). Correlation analysis is also used to examine the portfolio diversification benefits of housing. Additionally, the relationship between housing performance and inflation is investigated. The results show that housing is an effective property investment vehicle as it delivers the lowest risk-to-reward ratio when compared with three major assets over this study period. In addition, the results suggest that adding housing in properties can provide more diversification benefits. Moreover, housing returns exceed the rate of inflation and also there is a positive and significant relationship between housing returns and the rate of inflation. This study has implications for Iranian investors who seek to include housing in their portfolio.

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